Access to funds crucial as SMEs look abroad, says ADB
ASIA'S SMALL and medium-sized enterprises need finance to help them grow into dynamic, internationally competitive companies, which is key to strong, sustainable growth in Asia as the world recovers from the recent economic slowdown, according to the Asi
“Asia has millions of SMEs but few of them are able to grow to the point where they can innovate or be part of the global supply chain. To do this, they need more growth capital and opportunities to access various financing channels,” Noritaka Akamatsu, senior adviser in the ADB’s Sustainable Development and Climate Change Department, said yesterday.
The ADB’s “Asia SME Finance Monitor 2014”, which assesses 20 countries in developing Asia, found that SMEs make up 96 per cent of all registered firms and employ 62 per cent of the labour force. However, they contribute only 42 per cent of economic output.
Regional integration and trade liberalisation mean companies need to shift from being domestically focused to being more globally targeted. This also offers opportunities for smaller firms to explore offshore markets while exposing them to increased competition.
Governments in the region need to help SMEs become more competitive and able to participate in global value chains. This includes governments making it easier for SMEs to access new financing, such as supply chain finance.
Limited access to bank credit is a persistent problem in Asia and the Pacific. Lending to SMEs has declined over the course of the global financial crisis and last year, they received only 18.7 per cent of total bank loans.
Several countries have made progress tackling this. Papua New Guinea and the Solomon Islands have made it easier for companies to borrow using movable assets as collateral, Indonesia and the Philippines have introduced mandatory bank lending quotas to SMEs and Kazakhstan and Mongolia have encouraged loan-refinancing schemes.
However, the region needs to develop more credit bureaus, collateral registries and credit guarantees to expand financial outreach, particularly in low-income countries.
The non-bank finance industry – which typically includes finance companies, factoring and leasing firms, for example – in the Asia-Pacific region is still too small to meet the financing needs of SMEs, with its lending only one-tenth of total outstanding bank loans in the region.
Governments need to put in place a comprehensive policy framework to help non-bank financial institutions expand their SME financing options.
Efforts to open up equity markets to SMEs would also help provide SMEs with the long-term financing they need to mature.
